Small LLC/S-corp car purchase question

[Heroes821]

Hopefully this will be a short question and answer, but I recently read in Rich Dad, Poor Dad about the idea of your company holding assets so that you can pay for things before your money gets taxed.

I'm in the market for a new car and I was curious to see what would happen if I purchase the car in the name of my LLC.  Every time I google this question I end up with results about filing for depreciation and mileage for business travel but I'm not concerned about that.  I simply want to purchase the car with business profits to reduce my income tax due next year.  Since most of my driving is commuting to work I'm not concerned with filing for depreciation on the vehicle or other business expenses, I'm just curious what hurdles I have to jump if I want to buy the car through my business.

[SeattleCPA]

You don't create some new deduction by "sticking" the purchase inside an LLC or S corporation.

Note, too, that you can't write off commuting miles, only business miles.

Further, the auto deduction rules really limit you can deduct. It's hard and a lot of work to get meaningfully better than the standard mileage rate (.535 a mile) unless you buy a big truck or SUV.

[Heroes821]

Well my thought wasn't really to create a new deduction so much as to have the car purchase be a business expense which would then mean the money used for the purchase wouldn't be counted as income and then require me to pay income and FICA taxes on it.

[CareCPA]

Right, but it's not 100% a business expense unless it's used 100% for business.
Whether you buy it in the company name or your personal name, you're still going to have to allocate costs between business and personal use.
My suggestion is always to have it in your personal name and take the IRS deduction. You usually come out ahead as SeattleCPA mentioned in his post. This is especially helpful when you become a W-2 employee of your own company, as you get the expense one the company side but it is non-taxable income on the individual side.

ETA: This is actually true of a lot of expenses. Just because you buy things "in the name of the business" or "with the business account" doesn't mean they are automatically a business expense/deduction for your tax return.

[Heroes821]

Interesting. Is that an issue that only applies to small businesses? I work at a client site that issues company phones to all the employees but they are authorized to use them for personal use and I can't imagine the company attempts to organize hundreds of phones worth of personal vs business use cases.  Now that is definitely different than a car, but the "paid for the company" part is similar.

[CareCPA]

I would think cell phones fall under the de minimis. A handy resource for that: https://www.irs.gov/publications/p15b/index.html

I would put most issues into two main categories:
1. high dollar benefits (i.e. cars bought by the company and used for personal use - taxed as a fringe benefit and will show up on the W-2), and
2. benefits for the owner (the idea being that you can't start a company and just run through personal expenses for the owner).

[Heroes821]

I would think cell phones fall under the de minimis. A handy resource for that: https://www.irs.gov/publications/p15b/index.html

I would put most issues into two main categories:
1. high dollar benefits (i.e. cars bought by the company and used for personal use - taxed as a fringe benefit and will show up on the W-2), and
2. benefits for the owner (the idea being that you can't start a company and just run through personal expenses for the owner).

Logically, I agree with everything your saying, and thank you for the link I will check that out.  I find it interesting that your #2 while making sense to me, contradicts what the "Rich Dad Poor Dad author, Robert Kiyosaki, who is a multi millionaire even before writing his books talks about doing exactly that in a legal way with almost everything.

[CareCPA]

I would think cell phones fall under the de minimis. A handy resource for that: https://www.irs.gov/publications/p15b/index.html

I would put most issues into two main categories:
1. high dollar benefits (i.e. cars bought by the company and used for personal use - taxed as a fringe benefit and will show up on the W-2), and
2. benefits for the owner (the idea being that you can't start a company and just run through personal expenses for the owner).

Logically, I agree with everything your saying, and thank you for the link I will check that out.  I find it interesting that your #2 while making sense to me, contradicts what the "Rich Dad Poor Dad author, Robert Kiyosaki, who is a multi millionaire even before writing his books talks about doing exactly that in a legal way with almost everything.

Right, in a legal way, being the key phrase.

For example, the car is legal as long as you allocate the costs or deduct it on a per-mile basis. 53.5 cents per mile is very generous (especially if you buy a used car for $4,000. It doesn't take long to recover that cost and then come out ahead). If you have a true home office within the IRS definition, you can deduct a pro-rata amount of utilities/insurance/taxes - things you would have to pay with all post-tax money without a business.
You can also find accountants that won't look too closely and will let you deduct a lot of things you probably shouldn't, or that they call a "gray" area. I'm not a fan of these accountants, as they generally give the rest of us a bad reputation when we get a client and tell them they can't deduct expenses. No one likes to have their tax bill increase, even if it was artificially low.

I believe setting up a C-corp also allows deductions that a pass-through entity would not. I was merely speaking to your LLC/S-corp question.

Long story short, there are nuances to almost everything in the tax world. As I often say, taxes are not as black and white as people like to think.

[Heroes821]

Ah yeah C-corp... That makes more sense.  Good to know.  I appreciate the responses.  That pretty much answers my questions.